Don't Miss Out On Great Gains! - Best Investment Newsletter

Search For More

Saturday, May 31, 2008

The DJIA Priced in Ounces of Gold

A chart of the DOW Jones Industrial Average (DJIA) priced in gold shows the markets are not as healthy as one might think due to the decline of the US dollar.

Cutting the Fed Funds target rate from 6.50% in January 2001 to 1.0% in June 2003 may have inflated the US stock market out of its bear market when priced in dollars but it had consequences.

Cutting interest rates to get the US out of a recession may have worked but the inflation in commodites and devaluation of the US dollar it caused has caused pain for the US consumer. This pain is often blamed on president Bush who took office just as the DOW/Gold ratio broke out of the "symetrical triangle" pattern, explained below.

I think the chart of the DOW priced in gold also explains why a populist like Barak Obama with the most liberal voting record in the US Senate has a good chance to win the upcoming presidential election. The bursting of the stock market bubble of the 1990s mixed with the weak dollar actions of our government that include

going to war on credit (paying for a war with debt)and

increasing spending for social programs such as Bush's Medicare prescriptino drug plan for seniors

may have the majority of voters in the US ready for a change, even if the change (raising taxes) hurts the economy in the long run.

More on "Symetrical Triangle" chart patterns:

The Bible for technical analysis, Technical Analysis of Stock Trends, by Robert Edwards and John Magee, says about 75% of symmetrical triangles are continuation patterns and the rest mark reversals. This book makes a great Father's Day Gift!

The "return to the apex" of the Gold/DOW ratio in late 2001, early 2002 confirmed the technical breakdown of this chart pattern.